BASIC ECONOMIC PROBLEMS

The fundamental economic problem is the issue of scarcity but unlimited wants. Scarcity implies there
is only a limited quantity of resources, e.g. finite fossil fuels. Because of scarcity, there is a constant
opportunity cost – if you use resources to consume one good, you cannot consume another. Therefore,
an underlying feature of economics is concerned with dealing how to allocate resources in society to
make the most efficient and fair use of resources. The main issues are:

 What to produce?

 How to produce?

 For whom to produce?

Goods and services are used extensively in economic discussions that these are sometimes referred to as
economic goods. To distinguish the term from its other uses, economic goods cover goods, services,
products, and the like that have a price and are sold in a market.

WHAT TO PRODUCE? This first question relates to resources. If there is an abundant supply of labor in
the society, then the society will consider labor intensive products or will focus on providing services
instead of manufacturing goods. Additionally, availability of resources influences the decision on what to
produce. Consider two clothes manufacturers for instance. One uses abundant local fabric, and the other
uses imported and hard-to-source materials. The manufacturer that utilizes the readily available local
fabric would incur less cost.

HOW MUCH TO PRODUCE? This question focuses on the actual production of goods and services and
the allocation of resources. In terms of resources, a business has to decide on certain issues such as how
much to invest, how many people to hire to produce the goods or services and how much raw materials
to obtain. The question, therefore pertains to the inputs of production.

FOR WHOM TO PRODUCE? The final question focuses on the distribution and consumption of goods and
services. Is the good or services for end consumers of for other business for further production? Does it
address a need or a want? These questions are considered along with other business-related factors
such as marketability and pricing.

Examples of economic problems include  How to deal with external costs/pollution, e.g. pollution from
production.

 How to redistribute income to reduce poverty, without causing loss of economic incentives.

 How to provide public goods (e.g. street-lighting) which are usually not provided in a free market

.  How should we measure economic welfare? Is it wrong to focus on output and income? (as
economics has in the past) – New measures of economic welfare try to include broader range of factors,
such as environment, education, health care.

Major economic problems in the Philippines are very similar to the economic problems in other
underdeveloped countries. Some of the major pinpointed problems are the import-export imbalance,
causing those who specialize in trade and make their living off of imported and exported goods to lose
money. The imbalance causes families that are forced to survive off of this small income to wonder if
they are going to eat the next week or not.

SECTORS AND THEIR ECONOMIC PROBLEM ON:

1. Consumers

Households have limited income and they need to decide how to spend their finite income. For
example, with an annual income of £20,000, a household may need to spend £10,000 a year on rent,
council tax and utility bills. This leaves £10,000 for deciding which other food, clothes, transport and
other goods to purchase.

2. Workers

Householders will also face decisions on how much to work. For example, working overtime at the
weekend will give them extra income to spend, but less leisure time to enjoy it. A worker may also wish
to spend more time in learning new skills and qualifications. This may limit their earning power in the
short-term, but enable a greater earning power in the long-term. For example, at 18 a student could go
straight into work or they could go to university where they will hope to gain a degree and more earning
power in the long-term.

3. Producers

A producer needs to remain profitable (revenue higher than costs). So it will need to produce the goods
which are in high demand and respond to changing demands and buying habits of consumers – for
example, switching to online sales as the high street declines. Producers will need to constantly ask the
best way of producing goods. For example, purchasing new machines can increase productivity and
enable the firms to produce goods at a lower cost. This is important for fast-changing industries where
new technology is frequently reducing costs of production. Without firms adapting to how they produce,
they can become unprofitable. Firms may also need to make long-term investment decisions to invest in
new products and new means of production.

4. Government

The government has finite resources and its spending power is limited by the amount of tax that they
can collect. The government needs to decide how they collect tax and then they need to decide whom
they spend money on. For example, the government may wish to cut benefits to those on low income to
increase incentives to work. However, cutting benefits will increase inequality and relative poverty.

BASIC ECONOMIC PROBLEMS IN THE PHILIPPINES

A. UNEMPLOYMENT

In January 2022, the country’s unemployment rate was reported at 6.4 percent. This translates to
2.93 million unemployed Filipinos, projecting a decline of 1.04 million from the 3.96 million reported
in January 2021. unemployment includes all persons who are 15 years and over and are reported as :
(1) without work and currently available for work and looking for work; or (2) without work and
currently available for work but not looking for work due to the following reasons:

a.Tired/believed no work available

b.Waiting results of previous job application

c.Temporary illness/disability

d.Waiting for rehire/job recall

Unemployment is the main problem of the Philippine economy. As reported by the Philippine
Statistics Authority, the unemployment rate rose to 17.7 % accounting for 7.3 million unemployed
Filipinos in the labor force in April 2020 due to the effects of a pandemic (Coronavirus disease 2019)
economic shutdown to the Philippine labor market. The unemployment rate in January 2020 was 5.3
% while 5.1 % in April 2019.

UNEMPLOYMENT COMMON CAUSES

• The number of people entering the job market has been greater than the number of jobs created.
• The rural-urban migration increases due to employment opportunities.

• May of the unemployed individuals are college graduates.

B. POVERTY

It refers to the state or condition in which people do not have the minimum standard of life deemed
accepted by society.

According to a poverty survey of more than 15 million Filipinos carried out by the Department of
Social Welfare and Development (DSWD).

Common causes of poverty:

1.Increase in population

2.Increase in the cause of living

3.Unemployment

4.Income inequality

The best predictor of whether a family is poor is whether someone in that family has a job. If no one
in the family has a job, the family is more likely to be poor. Thus, the most direct way the
government can help reduce poverty is to nurture a healthy economy. Strong economy means better
job opportunities.

C. POOR QUALITY OF INFRASTRUCTURE

The Philippines ranked 56th out of 137 economies worldwide in the latest World Economic Forum
Global Competitiveness Report, basically holding steady versus its ranking of No. 57 last year. The
country maintained its score of 4.4 on a scale of 7.
. This can be result of low investment on infrastructure projects. . The budget for infrastructure is
consistently below 3% of Gross Domestic Product (GDP) and the government spending on social
infrastructure for education and health is only 4% of GDP.

From the economist’s point of view of poor infrastructure, the 2.2 million vehicles a day experiencing
traffic congestion cost the country PHP 876 billion a year, or more than $20 billion, in lost
productivity a wasted energy based on the study conducted by the Japan International Cooperation
Agency that would cost a serious drain on an economy of about $250 billion

D. INCOME INEQUALITY

Income is the money that an individual earns from work or business received from investments.
Income inequality refers to the gap in income that exists between the rich and the poor.

Major causes of Income Inequality in the Philippines

1. POLITICAL CULTURE- can be considered as one of the major causes of income inequality in the
Philippines. The “PALAKASAN” and the “UTANG NA LOOB” that cannot be avoided especially
after the election.

UTANG NA LOOB- is indebtedness to someone who has done someone in favor. It is an

obligation of a person to repay whatever good things they have done to you. It may be in the form of
voting for them in the election or do something for them till the end.

2. INDIRECT TAXES- is a regressive tax that the poor people shoulder the burden of paying higher
taxes like the Value Added Tax.

3. INCOME TAXES- A Filipino worker receiving minimum wage is exempted in the payment of
income tax, but for those Filipino workers earning more than the minimum wage is taxed 32
percent.

PHILIPPINE SOCIO-ECONOMIC DEVELOPMENT

• The Philippines has emerged as one of the most dynamic economies in the East Asia
Region

• The Philippine economy has grown at a rapid pace over the past five years.

• Strong capital investment and robust domestic demand have helped secure the
Philippines' position as the leading growth performer.